VWAP

VWAP, short for volume-weighted average price, is a trading benchmark that shows the average price a stock has traded at over a given session, weighted by how much volume traded at each price level. Unlike a simple average of the high and low, VWAP gives more influence to price levels where heavier trading actually occurred, making it a more accurate picture of where the bulk of a day's activity really happened.

VWAP is calculated by multiplying the price of each trade, or each interval's typical price, by the volume traded at that price, summing those values across the session, and dividing by the total volume traded. It is typically reset at the start of each trading day and recalculated continuously as new trades occur, building a running line on an intraday chart that traders can compare current price against in real time.

The formula is:

VWAP is used heavily by institutional traders and portfolio managers as a benchmark for execution quality, a large order filled at an average price better than the day's VWAP is generally considered a good execution, while one filled worse than VWAP is considered a poor one. Day traders also use it more directly as a reference line, treating a stock trading above VWAP as showing intraday strength and a stock trading below it as showing intraday weakness, and some use a return to VWAP as a signal to enter a position in the direction of the broader trend.